Paper
What's Wrong and Right with Microfinance – Missing an Angle on Responsible Finance?
How can microfinance recover from its tarnished image?
11 pages
This paper examines recent accusations that microfinance has failed to help the poor, is treating clients badly, is charging high interest rates and has encouraged poor people to take on excessive debt burdens.Study findings demonstrate that MFIs can have significant positive impacts, including democratization of banking services, the provision of secure savings facilities for poor people, and social benefits. The paper looks at the way forward for microfinance, suggesting changes that need to be implemented by MFIs, banking authorities and governments. Recommendations include:
- MFIs need to be transparent about their charges, terms and conditions;
- MFIs need to moderate their claims about reaching the poorest and reducing poverty;
- MFIs need to examine their assessments of field staff performance, placing equal importance on client relationships as on financial targets;
- Agencies that regulate MFIs need to be cautious about setting interest rate ceilings on microloans;
- Banking regulations should be amended, so that well-managed MFIs can offer more savings services to their clients;
- Microfinance should keep a low profile, with low costs, incremental expansion and a focus on both savings services and loans.
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